Law: Income Tax Act, 1922

Section: 10(2)(vii)

Law: Income Tax Act, 1922

Section: 10(2)(vii)

Section 41(2) of the Income-tax Act, 1961 [Corresponding to section 10(2)(vii) of the Indian Income-tax Act, 1922] - Balancing charge - Assessment year 1956-57 - Assessee-company started its business under a licence obtained under Indian Electricity Act - In pursuance of agreement contained in licence, Government exercised its option to purchase undertaking of assessee during assessment year 1956-57 and made payments in accordance with provisions of section 7 of Electricity Act - Whether, word 'amount' used in section 10(2)(vii) of 1922 Act included total amount paid by Government to assessee by virtue of licence and in pursuance of section 7 of Electricity Act including fair market value under first proviso and added value upto 20 percent by virtue of second proviso to section 7 of Electricity Act - Held, yes - Whether, therefore, surplus realised by assessee would be assessable under section 10(2)(vii) of 1922 Act - Held, yes FACTS The assessee-company in liquidation, started its business in 1941, under a licence dated 23-4-1935, under the Indian Electricity Act. In pursuance of the agreement contained in the licence, the Government exercised its option to purchase the undertaking of the assessee during the financial year ending 31-3-1956, i.e., during the assessment year 1956-57. In making the income-tax assessment for the aforesaid year, the ITO held that the provisions of section 10(2)(vii) of the 1922 Act were attracted and determined the taxable profits on the sale of the machinery. On appeal, the AAC as well as the Tribunal upheld the order of the ITO. On reference, the assessee contended that in view of the of the Supreme Court in Fazilka Electric Supply Company Ltd. v. CIT [1962] 46 ITR 127, though the machinery, etc., had not been compulsorily acquired by the Government but had been purchased by it, even so, it was only the fair market value of the machinery, etc., referred to in the first proviso to section 7(1) of the Electricity Act which should be treated as "the amount" for which the machinery had been "actually sold" within the meaning of section 10(2)(vii) of the 1922 Act and that the additional stipulated amount paid by virtue of the…

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